One of my favourite adverts of all time was an airline billboard from several decades ago that read along the lines of
“If you don’t fly first class, your children will”
While of course it is very much in the airlines interest to sell first class tickets and they would very much like to see wealthy people spending their money doing so, there is a much deeper underlying message here.
It is no secret that the attitudes to spending and saving have changed as generations have passed, however I think there is much more to it than that.
There are important psychological issues at play which influence how we manage our money and a massive part of this is what is often referred to as the Effort Heuristic. This theory suggests that we place more value and more worth on something that was difficult and / or time consuming to obtain. I can’t think of many things that we spend as long accumulating as our ‘nest egg’ for retirement – often built up over a period of 30-40 years or more.
To quote Wikipedia:
An example of this would be the comparison of $100 earned, and $100 found. If someone finds $100 they are more inclined to go spend it on a whim, but if that $100 is part of a hard-earned paycheck, they are less likely to squander it away.
As a result, we tend to be very attached to our own nest egg. It has taken us many years (and no doubt some blood, sweat and tears) to build up and therefore we often don’t wish to see it quickly frittered away on £20,000 airfares!
When someone inherits money however, they do so in a heartbeat – they are receiving decades of hard work and sacrifice overnight – without having been through any of the journey to obtain that level of wealth. This could well explain why some of the most common uses for a new inheritance are a new car and a holiday (before even repaying the recipient’s own mortgage).
Although many are quick to put this apparent flippancy down to the generational divide, there are likely many other factors at play here, psychology chief among them.
This is why we feel it is so important to try and teach beneficiaries how to manage what can be life changing sums of money and to communicate some of the journey the donor has been through to get there – although nothing is ever going to replace three or four decades of lived experience, just an understanding of the difficulty mum and dad went through to provide an inheritance can have a profound impact on how seriously the beneficiaries treat the funds.
